New guidelines should remove uncertainty

Lawyers said new guidelines on related party transactions highlighted the Australian Securities and Investments Commission’s crackdown on directors conflicts of interest and would put an end to any grey areas in regards to the arm’s length exceptions.

Robert Austin, former judge of the NSW Supreme Court, senior consultant at Minter Ellison:

This will be very useful guidance that will have to be taken seriously because ASIC is very serious indeed about this area.

They’ve really beefed up the guidance to arm’s length transactions, which is important. Companies at the smaller end of the market gave some reason for concern that the arm’s length exception has been over-worked. ASIC’s concern was that the exception had been applied to much.

It reflects the seriousness with which ASIC is approaching this whole area of directors’ conflicts of interest. Further clarity was important.

Guy Alexander, partner at Allens Arthur Robinson:

It’s not a bad collection of the law on related party transactions and it probably useful to have it in the one spot.

The hard thing in these sorts of deals is that often the arm’s length terms test is a hard one to apply, particularly in a distressed company situation.

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It’s the entities that probably aren’t so well advised that I think ASIC believes by having a regulatory guide out there that those parties may take some more notice of this and be more cognisant of the issues in a related party transaction than otherwise would have been the case.

It’s really not too much more than a collation of the existing law.

Tim McEwen, Freehills partner:

It very clearly puts ASIC’s views on disclosure on the record and it raises the bar to make sure companies meet all these requirements.

ASIC has a focus on making sure that in these cases, shareholders have an understanding of what the alternative transactions were as well as an understanding of the transaction they are voting on. It is relevant to know why other options didn’t happen or couldn’t have happened.

[Mr McEwen said it would be unlikely that ASIC would issue comment letters for non-compliance with related party disclosure guidelines.]

That would be a pretty extreme example. We would always try and reach a position with ASIC where we agree the disclosure is appropriate and it wouldn’t get to that stage.

Karen Evans-Cullen, Clayton Utz partner:

In some ways I think it is a recognition that perhaps not given enough consideration was given to related party disclosures in the past.

[Having worked with ASIC on related party transactions in the past, Ms Evans-Cullen said it was good to show the rest of the market how stringent ASIC’s guidelines were and the level of detail required in the explanatory meeting materials.]